BAC-WT - Bank of America Warrants

[ERICOPOLY]

capital returns just got a lot easier:

http://www.federalreserve.gov/newsevents/press/bcreg/20121109b.htm

 

"In a change from prior years, following the Federal Reserve's assessment of the initial capital plans, CCAR firms will have one opportunity to make a downward adjustment to their planned capital distributions from their initial submissions before a final Federal Reserve decision is made. "

 

i.e. if you asked for $10Bn in capital returns, and you missed by $500MM, you can just ask for a $9.5Bn capital return. 

 

Pandit would still have a job if this rule were enacted last year; but it also means that the banks will be pretty close to max capital returns allowable without so much guessing.

 

That's strange.  Under the new rule I ask for $100b, and they say I miss by $95b.

 

So then I say, okay, I ask for $5b then.

 

Why don't we cut to the chase and just have the Fed tell the banks what they can return?

[MrB]

Great points MrB.

 

My question now, if we are 10y into the future and Bank of America was a disaster of an investment. What could have happened?

 

Also, it makes it a heads I win, tails I win on this one. That is what why fixing the balance sheet is first and foremost. Even before buying back stock, because it creates options.

…

 

If Basel lll is implemented BofA wins more business because the non-US banks have to raise capital/shrink BS and if it is not then BofA wins more business because it can grow/lever up faster.

 

Plan, I thought you will at least give me a clean run with at least a handful of posts!

 

Oh, well here we go ;-)

 

Derivatives

The next Semerci. JPM just proved that the risk has not subdued in today's environment

Japanese experience

[JRH]

My question now, if we are 10y into the future and Bank of America was a disaster of an investment. What could have happened?

 

From the Motley Fool board post linked earlier, I suppose the obvious lesson is that one possible disaster route is:

 

1) Cost cutting succeeds, BAC goes from playing defense to playing offense

2) ROE builds in the business units on the back of managers with the incentive of stock grants/options

3) Incentive to expand ROE outweighs incentive to manage to macro/systemic risks.  If the whole industry is doing this, you get Minskyan "stability causes instability".

 

I think a lot about the adage that "history doesn't repeat, but it often rhymes".

 

Also, a terrible acquisition is always a risk.  I suppose that would pretty much qualify as history repeating, though (Countrywide).

 

I don't think this was much of an answer.

[xazp]

Why don't we cut to the chase and just have the Fed tell the banks what they can return? 

 

I honestly don't know.  ANd I don't know why they had to slap C down so hard, when they missed by a few hundred million. 

 

I think this change significantly reduces the risk.  Where before you had a 10% chance of just getting $0, now it seems like they should all pass.  I think it's important though I haven't seen others talk about it much. 

 

 

capital returns just got a lot easier:

http://www.federalreserve.gov/newsevents/press/bcreg/20121109b.htm

 

"In a change from prior years, following the Federal Reserve's assessment of the initial capital plans, CCAR firms will have one opportunity to make a downward adjustment to their planned capital distributions from their initial submissions before a final Federal Reserve decision is made. "

 

i.e. if you asked for $10Bn in capital returns, and you missed by $500MM, you can just ask for a $9.5Bn capital return. 

 

Pandit would still have a job if this rule were enacted last year; but it also means that the banks will be pretty close to max capital returns allowable without so much guessing.

 

That's strange.  Under the new rule I ask for $100b, and they say I miss by $95b.

 

So then I say, okay, I ask for $5b then.

 

Why don't we cut to the chase and just have the Fed tell the banks what they can return?

[enoch01]

 

Why don't we cut to the chase and just have the Fed tell the banks what they can return?

 

I wonder if it has anything to do with not wanting the banks to try and game a system.  Keep 'em on their toes, and they'll take less risk?

[PlanMaestro]

Plan, I thought you will at least give me a clean run with at least a handful of posts!

 

And miss the opportunity to pick the brain of a smart guy? Especially after such a run! ;)

 

Thanks MrB.

[MrB]

I'm playing catchup at the best of times. Stop blowing smoke up my a... and tell me what do you think is going to kill us in this thing over the next decade.

[MrB]

General question: Can anyone point me to a time when BAC faced a similar situation to what it's facing/has been facing recently. Another time the bottom fell out?

[Kraven]

General question: Can anyone point me to a time when BAC faced a similar situation to what it's facing/has been facing recently. Another time the bottom fell out?

 

I don't think it would really matter honestly.  Today's BAC isn't the same as BAC of years past.

[PlanMaestro]

I'm playing catchup at the best of times. Stop blowing smoke up my a... and tell me what do you think is going to kill us in this thing over the next decade.

 

Let's see. To tell you the truth, with Moynihan in charge and the current regulatory environment. I don't think derivatives or M&A is an issue. Most probably also we are not going to see another American banking crisis for the next 20 years, and maybe more.

 

From the innovation side, I don't see anything either. The internet is being co-opted by the Big 4 and actually is a challenge for the small banks.

 

I would say the risk is if we get an Idiot in charge, someone from the former Charlotte clique.

 

 

[Parsad]

capital returns just got a lot easier:

http://www.federalreserve.gov/newsevents/press/bcreg/20121109b.htm

 

"In a change from prior years, following the Federal Reserve's assessment of the initial capital plans, CCAR firms will have one opportunity to make a downward adjustment to their planned capital distributions from their initial submissions before a final Federal Reserve decision is made. "

 

i.e. if you asked for $10Bn in capital returns, and you missed by $500MM, you can just ask for a $9.5Bn capital return. 

 

Pandit would still have a job if this rule were enacted last year; but it also means that the banks will be pretty close to max capital returns allowable without so much guessing.

 

That's strange.  Under the new rule I ask for $100b, and they say I miss by $95b.

 

So then I say, okay, I ask for $5b then.

 

Why don't we cut to the chase and just have the Fed tell the banks what they can return?

 

That would be too logical and would put the onus on the Fed instead of the banks...they don't want that liability, even though they backstop the banks!  ;D  Cheers!

[Parsad]

I'm playing catchup at the best of times. Stop blowing smoke up my a... and tell me what do you think is going to kill us in this thing over the next decade.

 

I think while the risk is small, a systemic event could still take down the banks.  If governments are already quite leveraged, what is the likelihood they could bail out all of the banks again...especially outside of North America?  Remember, Prem is still fully hedged...parts of Europe are in the midst of a depression...China is slowing and we have no idea what the underlying liabilities of their financial institutions are...Japan is heavily leveraged.  A systemic event that triggers a domino style collapse is still a remote possibility.  While U.S. banks don't have much European exposure or in general alot of global exposure, a systemic crisis could create a run.  So, while it is remote, remember banks are very leveraged businesses that are susceptible to runs in a panic.  Cheers!

[nkp007]

I'm playing catchup at the best of times. Stop blowing smoke up my a... and tell me what do you think is going to kill us in this thing over the next decade.

 

I think while the risk is small, a systemic event could still take down the banks.  If governments are already quite leveraged, what is the likelihood they could bail out all of the banks again...especially outside of North America?  Remember, Prem is still fully hedged...parts of Europe are in the midst of a depression...China is slowing and we have no idea what the underlying liabilities of their financial institutions are...Japan is heavily leveraged.  A systemic event that triggers a domino style collapse is still a remote possibility.  While U.S. banks don't have much European exposure or in general alot of global exposure, a systemic crisis could create a run.  So, while it is remote, remember banks are very leveraged businesses that are susceptible to runs in a panic.  Cheers!

 

The next thing that will threaten to blow up U.S. banks will be U.S. Treasuries.

 

Perhaps within the next ten years. Just wait for it.

 

 

[MrB]

I'm playing catchup at the best of times. Stop blowing smoke up my a... and tell me what do you think is going to kill us in this thing over the next decade.

 

I think while the risk is small, a systemic event could still take down the banks.  If governments are already quite leveraged, what is the likelihood they could bail out all of the banks again...especially outside of North America?  Remember, Prem is still fully hedged...parts of Europe are in the midst of a depression...China is slowing and we have no idea what the underlying liabilities of their financial institutions are...Japan is heavily leveraged.  A systemic event that triggers a domino style collapse is still a remote possibility.  While U.S. banks don't have much European exposure or in general alot of global exposure, a systemic crisis could create a run.  So, while it is remote, remember banks are very leveraged businesses that are susceptible to runs in a panic.  Cheers!

 

When the tide goes out there is always at least one caught with his pants down and the tide is clearly going out again. So safe to say it will come, just don't know from where.

Also, God forbid, but an earthquake in San Fran is way overdue..for several years now.

[PlanMaestro]

I picked this up from the following TMF post. http://boards.fool.com/bac-29413181.aspx?sort=whole#29413181

 

Reading the thread, and this is a very good comment about the excellent Fortune article from last year.

 

---------------------

Denny,

 

I hear you on the acquisition issues with BofA. We were BankBoston customers until Fleet gobbled them up as well. Fleet was terrible. They hiked fees all over the place, and everyone just left. Moynihan was actaully the acquisition monkey for Fleet, so I was not thrilled with that aspect of his pedigree. To my recollecction Fleet was at least an order of magnitude worse than BofA on the Darth Vader- scale.

 

That's in part why I was surprised by a couple of elements of a Fortune article pertaining to BofA that recently came out.

 

http://finance.fortune.cnn.com/2011/07/07/can-brian-moynihan...

 

The first one was that Moynihan made an agreement with the board that no acquisitions would even be considered:

 

 

Moynihan landed the CEO job during a secret interview at the Four Seasons hotel in New York City in November 2009 by promising the board's search committee that he would follow a rigid set of principles: Sell virtually every asset unrelated to bedrock banking. Forget all acquisitions, now and forever. Don't grow total loans, but do change the mix so BofA won't be overexposed to risky consumer credit in a bad cycle.

 

In effect, Moynihan was repudiating the go-for-growth culture that reigned under Lewis. "We got in trouble trying to grow far faster than GDP," he warned the directors. "Our goal should be to grow with the economy and the customers we have now, not take a lot of risk chasing new ones." Never again, he swore, would BofA need to sell stock in a downturn to survive. To the board, Moynihan's plan was far more than a knee-jerk reaction to the crisis. It struck them as a better way to run a bank, period. "Brian wants to level out the peaks and valleys, so that we won't get hit in a downturn as in the past," says director Thomas Ryan, the retired chairman of CVS Caremark (CVS).

 

 

The second was that BofA would attempt to become more customer friendly (very anti-Fleet business model. Fleet was all about fees, fees, fees...). The following is heavily edited for brevity:

 

 

Moynihan also aims to make the retail experience more customer-friendly, free of hidden "gotcha" fees that make people hate their banks. A crucial move is his decision on debit card fees. Last year Congress enacted legislation requiring banks to ask customers if they'd accept or decline being allowed to overdraw their accounts. If customers chose to "opt in," banks could keep charging the fat fees.

 

Moynihan eliminated debit card overdrafts on purchases. That gambit erased $1 billion a year in revenues and astounded the competition. "We can't be the biggest bank in America and have people thinking we're taking advantage of them," he says.

 

No such attitude ever existed in any way at Fleet.

 

One last passage seems to indicate their impression of how long the "road back" might be (2-3 years), and where they go from there:

 

 

In explaining his current strategy, Moynihan divides the future into two main periods. Over the next two years, he says, Bank of America will retain virtually all its earnings to build the funds necessary to comply with the new Basel III international standards of capital requirements for financial institutions, which are anticipated to be stringent. He adamantly insists that during this period, BofA's earnings power makes the crunch scenarios that critics fear impossible. "To say we have to raise capital is wrong," he says. "We'll generate all we need from our own earnings."

 

When BofA has built up a sufficient capital cushion, probably two to three years from now, Moynihan plans to return all earnings to investors in dividends or share buybacks -- we're talking about $25 billion a year, all stuffing shareholders' pockets. "We need to get back most of the shares we issued in the crisis, that caused all the dilution," says Moynihan. It's a classic value strategy of growing modestly without plowing profits back into the business.

 

I've held BAC in the past, but none right now. I may reconsider when this momentum turns. The market did not like this big red number, but it shouldn't have been a surprise with the Mortgage settlement that BofA just closed. Right now, they look like they may just get cheaper. A shout out from me to Mike for that excellent write up. Thanks for taking the time!

 

Peter

[Kraven]

I picked this up from the following TMF post. http://boards.fool.com/bac-29413181.aspx?sort=whole#29413181

 

Reading the thread, and this is a very good comment about the excellent Forbes article from last year.

 

---------------------

Denny,

 

I hear you on the acquisition issues with BofA. We were BankBoston customers until Fleet gobbled them up as well. Fleet was terrible. They hiked fees all over the place, and everyone just left. Moynihan was actaully the acquisition monkey for Fleet, so I was not thrilled with that aspect of his pedigree. To my recollecction Fleet was at least an order of magnitude worse than BofA on the Darth Vader- scale.

 

That's in part why I was surprised by a couple of elements of a Fortune article pertaining to BofA that recently came out.

 

http://finance.fortune.cnn.com/2011/07/07/can-brian-moynihan...

 

The first one was that Moynihan made an agreement with the board that no acquisitions would even be considered:

 

 

Moynihan landed the CEO job during a secret interview at the Four Seasons hotel in New York City in November 2009 by promising the board's search committee that he would follow a rigid set of principles: Sell virtually every asset unrelated to bedrock banking. Forget all acquisitions, now and forever. Don't grow total loans, but do change the mix so BofA won't be overexposed to risky consumer credit in a bad cycle.

 

In effect, Moynihan was repudiating the go-for-growth culture that reigned under Lewis. "We got in trouble trying to grow far faster than GDP," he warned the directors. "Our goal should be to grow with the economy and the customers we have now, not take a lot of risk chasing new ones." Never again, he swore, would BofA need to sell stock in a downturn to survive. To the board, Moynihan's plan was far more than a knee-jerk reaction to the crisis. It struck them as a better way to run a bank, period. "Brian wants to level out the peaks and valleys, so that we won't get hit in a downturn as in the past," says director Thomas Ryan, the retired chairman of CVS Caremark (CVS).

 

 

The second was that BofA would attempt to become more customer friendly (very anti-Fleet business model. Fleet was all about fees, fees, fees...). The following is heavily edited for brevity:

 

 

Moynihan also aims to make the retail experience more customer-friendly, free of hidden "gotcha" fees that make people hate their banks. A crucial move is his decision on debit card fees. Last year Congress enacted legislation requiring banks to ask customers if they'd accept or decline being allowed to overdraw their accounts. If customers chose to "opt in," banks could keep charging the fat fees.

 

Moynihan eliminated debit card overdrafts on purchases. That gambit erased $1 billion a year in revenues and astounded the competition. "We can't be the biggest bank in America and have people thinking we're taking advantage of them," he says.

 

No such attitude ever existed in any way at Fleet.

 

One last passage seems to indicate their impression of how long the "road back" might be (2-3 years), and where they go from there:

 

 

In explaining his current strategy, Moynihan divides the future into two main periods. Over the next two years, he says, Bank of America will retain virtually all its earnings to build the funds necessary to comply with the new Basel III international standards of capital requirements for financial institutions, which are anticipated to be stringent. He adamantly insists that during this period, BofA's earnings power makes the crunch scenarios that critics fear impossible. "To say we have to raise capital is wrong," he says. "We'll generate all we need from our own earnings."

 

When BofA has built up a sufficient capital cushion, probably two to three years from now, Moynihan plans to return all earnings to investors in dividends or share buybacks -- we're talking about $25 billion a year, all stuffing shareholders' pockets. "We need to get back most of the shares we issued in the crisis, that caused all the dilution," says Moynihan. It's a classic value strategy of growing modestly without plowing profits back into the business.

 

I've held BAC in the past, but none right now. I may reconsider when this momentum turns. The market did not like this big red number, but it shouldn't have been a surprise with the Mortgage settlement that BofA just closed. Right now, they look like they may just get cheaper. A shout out from me to Mike for that excellent write up. Thanks for taking the time!

 

Peter

 

I actually think the person (Peter on Motley Fool) making this comment doesn't really understand the issues.  He's attributing certain behaviors of Fleet to Moynihan, yet Moynihan wasn't anywhere close to being in charge.  If memory serves in fact he joined as a counsel and not even THE general counsel.  I think he moved over to the business side and moved up the ladder to some kind of executive VP role, but simply did what he was told.  Not only do I think looking at Moynihan through the lens of Fleet is misleading, I think it's very flawed.  He worked for some demanding bosses along the way.  Murray at Fleet, then Lewis at BofA.  He did what he was told.  Much better to look at his accomplishments these past 2 years or so.  He has righted the ship and done exactly what he said he would do.  He may not be the smoothest talker, but he is a doer.

[Parsad]

I picked this up from the following TMF post. http://boards.fool.com/bac-29413181.aspx?sort=whole#29413181

 

Reading the thread, and this is a very good comment about the excellent Fortune article from last year.

 

---------------------

Denny,

 

I hear you on the acquisition issues with BofA. We were BankBoston customers until Fleet gobbled them up as well. Fleet was terrible. They hiked fees all over the place, and everyone just left. Moynihan was actaully the acquisition monkey for Fleet, so I was not thrilled with that aspect of his pedigree. To my recollecction Fleet was at least an order of magnitude worse than BofA on the Darth Vader- scale.

 

That's in part why I was surprised by a couple of elements of a Fortune article pertaining to BofA that recently came out.

 

http://finance.fortune.cnn.com/2011/07/07/can-brian-moynihan...

 

The first one was that Moynihan made an agreement with the board that no acquisitions would even be considered:

 

 

Moynihan landed the CEO job during a secret interview at the Four Seasons hotel in New York City in November 2009 by promising the board's search committee that he would follow a rigid set of principles: Sell virtually every asset unrelated to bedrock banking. Forget all acquisitions, now and forever. Don't grow total loans, but do change the mix so BofA won't be overexposed to risky consumer credit in a bad cycle.

 

In effect, Moynihan was repudiating the go-for-growth culture that reigned under Lewis. "We got in trouble trying to grow far faster than GDP," he warned the directors. "Our goal should be to grow with the economy and the customers we have now, not take a lot of risk chasing new ones." Never again, he swore, would BofA need to sell stock in a downturn to survive. To the board, Moynihan's plan was far more than a knee-jerk reaction to the crisis. It struck them as a better way to run a bank, period. "Brian wants to level out the peaks and valleys, so that we won't get hit in a downturn as in the past," says director Thomas Ryan, the retired chairman of CVS Caremark (CVS).

 

 

The second was that BofA would attempt to become more customer friendly (very anti-Fleet business model. Fleet was all about fees, fees, fees...). The following is heavily edited for brevity:

 

 

Moynihan also aims to make the retail experience more customer-friendly, free of hidden "gotcha" fees that make people hate their banks. A crucial move is his decision on debit card fees. Last year Congress enacted legislation requiring banks to ask customers if they'd accept or decline being allowed to overdraw their accounts. If customers chose to "opt in," banks could keep charging the fat fees.

 

Moynihan eliminated debit card overdrafts on purchases. That gambit erased $1 billion a year in revenues and astounded the competition. "We can't be the biggest bank in America and have people thinking we're taking advantage of them," he says.

 

No such attitude ever existed in any way at Fleet.

 

One last passage seems to indicate their impression of how long the "road back" might be (2-3 years), and where they go from there:

 

 

In explaining his current strategy, Moynihan divides the future into two main periods. Over the next two years, he says, Bank of America will retain virtually all its earnings to build the funds necessary to comply with the new Basel III international standards of capital requirements for financial institutions, which are anticipated to be stringent. He adamantly insists that during this period, BofA's earnings power makes the crunch scenarios that critics fear impossible. "To say we have to raise capital is wrong," he says. "We'll generate all we need from our own earnings."

 

When BofA has built up a sufficient capital cushion, probably two to three years from now, Moynihan plans to return all earnings to investors in dividends or share buybacks -- we're talking about $25 billion a year, all stuffing shareholders' pockets. "We need to get back most of the shares we issued in the crisis, that caused all the dilution," says Moynihan. It's a classic value strategy of growing modestly without plowing profits back into the business.

 

I've held BAC in the past, but none right now. I may reconsider when this momentum turns. The market did not like this big red number, but it shouldn't have been a surprise with the Mortgage settlement that BofA just closed. Right now, they look like they may just get cheaper. A shout out from me to Mike for that excellent write up. Thanks for taking the time!

 

Peter

 

 

Fantastic article!  Don't remember reading that one...thanks!  Cheers!

[PlanMaestro]

Video about the Fortune article:

 

http://money.cnn.com/video/news/2011/07/06/f_tully_bank_of_america.fortune/

[Grenville]

Video about the Fortune article:

 

http://money.cnn.com/video/news/2011/07/06/f_tully_bank_of_america.fortune/

 

nice video, thanks!

[Uccmal]

I'm playing catchup at the best of times. Stop blowing smoke up my a... and tell me what do you think is going to kill us in this thing over the next decade.

 

You can bet it will be something that hasn't been thought of yet. 

 

To be fair to BACs culture the bulk of the problems and costs have come from Countrywide.  If they can keep the urge to acquire at bay, a total blowup may put off until the next systemic banking crisis in 20 years. 

 

[MrB]

 

I actually think the person (Peter on Motley Fool) making this comment doesn't really understand the issues.  He's attributing certain behaviors of Fleet to Moynihan, yet Moynihan wasn't anywhere close to being in charge.  If memory serves in fact he joined as a counsel and not even THE general counsel.  I think he moved over to the business side and moved up the ladder to some kind of executive VP role, but simply did what he was told.  Not only do I think looking at Moynihan through the lens of Fleet is misleading, I think it's very flawed.  He worked for some demanding bosses along the way.  Murray at Fleet, then Lewis at BofA.  He did what he was told.  Much better to look at his accomplishments these past 2 years or so.  He has righted the ship and done exactly what he said he would do.  He may not be the smoothest talker, but he is a doer.

 

Great input eveyone.

Kraven,

I just noted in "Crash of the Titans" p. 193 "He was completely dedicated to the Charlotte bank, a tireless worker, and he executed every order he received from on high"...someone's opinion of course.

 

http://en.wikipedia.org/wiki/Brian_Moynihan

" He originally joined Fleet Boston in April 1993 as deputy general counsel, after being recruited from Edwards & Angell by Fleet's then-CEO, Terrence Murray.[8] From 1999 to April 2004, he served as executive vice president, managing Fleet's brokerage and wealth management division after 2000. After Bank of America merged with FleetBoston Financial in 2004, Moynihan joined the bank as president of global wealth and investment management.[10]"

 

[Kraven]

 

I actually think the person (Peter on Motley Fool) making this comment doesn't really understand the issues.  He's attributing certain behaviors of Fleet to Moynihan, yet Moynihan wasn't anywhere close to being in charge.  If memory serves in fact he joined as a counsel and not even THE general counsel.  I think he moved over to the business side and moved up the ladder to some kind of executive VP role, but simply did what he was told.  Not only do I think looking at Moynihan through the lens of Fleet is misleading, I think it's very flawed.  He worked for some demanding bosses along the way.  Murray at Fleet, then Lewis at BofA.  He did what he was told.  Much better to look at his accomplishments these past 2 years or so.  He has righted the ship and done exactly what he said he would do.  He may not be the smoothest talker, but he is a doer.

 

Great input eveyone.

Kraven,

I just noted in "Crash of the Titans" p. 193 "He was completely dedicated to the Charlotte bank, a tireless worker, and he executed every order he received from on high"...someone's opinion of course.

 

http://en.wikipedia.org/wiki/Brian_Moynihan

" He originally joined Fleet Boston in April 1993 as deputy general counsel, after being recruited from Edwards & Angell by Fleet's then-CEO, Terrence Murray.[8] From 1999 to April 2004, he served as executive vice president, managing Fleet's brokerage and wealth management division after 2000. After Bank of America merged with FleetBoston Financial in 2004, Moynihan joined the bank as president of global wealth and investment management.[10]"

 

Good find, Mr. B, from Crash of the Titans.  That has definitely been my view of Moynihan.  He was always a good soldier.  I remember when after years removed from being a practicing lawyer he was inexplicably made GC at BAC.  It made no sense at all, but he did it.  Now he is in charge and there is a huge difference between doing what you're told and being a leader.  We have 2 years of data now on how he will operate.  Doesn't mean that's how he will act forever, but so far he has done what he said he would do and more. 

 

By the way, how is Crash of the Titans?  It's been on my list, but haven't ordered it yet.  Worth reading?

[MrB]

Good find, Mr. B, from Crash of the Titans.  That has definitely been my view of Moynihan.  He was always a good soldier.  I remember when after years removed from being a practicing lawyer he was inexplicably made GC at BAC.  It made no sense at all, but he did it.  Now he is in charge and there is a huge difference between doing what you're told and being a leader.  We have 2 years of data now on how he will operate.  Doesn't mean that's how he will act forever, but so far he has done what he said he would do and more. 

 

By the way, how is Crash of the Titans?  It's been on my list, but haven't ordered it yet.  Worth reading?

 

First to your question; I picked it up after a rec on this board. Only into the 4th chapter and glad I got it. It also makes you realize again that its a people business and you have to understand the culture of banks in general and the one your invested in, in particular. The signs can be read from the outside and an investor needs to pay attention. These guys do not luck into the job at the top. They get there with the support of a lot of "friends" in the company and on the board. Then the first thing they do is surround them with the people they want. So as the CEO goes, so does the top team and as the top team goes, so does the rest of the bank.

For me at least, Pandit, was the reason I was not prepared to even look at Citi. Maybe I was overemphasizing one piece of information, but I just felt Moynihan was a guy I'm prepared to open a book on. Jamie is investable and so is Stumpf. The book underscores that you do need to put a lot of weight on the CEO, because he dictates the culture.

 

The following from the mentioned Fortune article shouts out dealmaker. So let's see if he sticks to his plan. So far, so good.

http://finance.fortune.cnn.com/2011/07/07/can-brian-moynihan-fix-americas-biggest-bank/

 

Returning to Providence, Moynihan joined the law firm Edwards & Angell in 1984. He soon began working on mergers for a Providence bank called Fleet Financial, a midget that harbored gigantic ambitions. Its CEO, Terry Murray, would eventually create FleetBoston by buying most of the major banks in the region, with Moynihan as his chief dealmaker. Moynihan, still a lawyer, first impressed Murray during the purchase of the failed Bank of New England from the FDIC in 1991. It was the deal that made Fleet a major force. Moynihan's creativity, and work ethic, astounded Murray. "At 11 p.m., I'd tell the investment bankers to model the effect on earnings if we paid different prices, with Brian in the room," says Murray. "The next morning at 8 a.m., he'd have the entire model ready showing the dilution or accretion, depending on the price, before the bankers even arrived."

In 1993, Murray hired Moynihan, and the pair formed a mentor-student relationship, reminiscent of the rapport between the creators of Citigroup ©, Sandy Weill and Jamie Dimon. Murray reveled in his rugged upbringing in a "triple decker" -- a three story, working-class apartment house. He prided himself on playing the underdog from a tiny bank in a tiny state, with the guts to steal the mantle of banking from the aristocrats in Boston. A consummate storyteller, the flamboyant Murray couldn't have been more different from his slogging protégé.

But Murray and Moynihan shared the same philosophy on making deals. They concentrated on extremely complex transactions, and they liked to pay cash. The reason was simple: The tangled deals scared off other potential bidders, allowing Fleet to buy on the cheap. Mike Lyons, who now heads strategy at BofA, worked on Moynihan's team for two years in the mid-1990s. "Brian would use a strategy we called 'hanging around the hoop,' " says Lyons. He'd make a low-ball offer on a complex deal and wait while all the other bidders dropped out, then low-ball again. That strategy worked brilliantly with the purchase of NatWest's U.S. business in late 1995. The ailing British bank's investment bankers, Goldman Sachs (GS), handed Moynihan a letter with the asking price. Moynihan whipped out a pen, crossed it out, and wrote in a drastically lower number. He got his price.

After completing an acquisition, Moynihan and his team would swoop down on the credit card unit or broker, analyze the business, then decide which parts of it to sell, grow, and fix. Recalls Lyons: "Brian would examine every asset, including securities, land, buildings. He'd do an assessment of what it's worth and what we should do with it."

The crowning deal for Murray and Moynihan was Fleet's $16 billion acquisition of BankBoston in 1999. It was a landmark moment in New England. BankBoston, founded in 1784, had dominated banking in the region for decades. Once again, it was Moynihan who turned a complex twist to Fleet's advantage. The Justice Department required that Fleet sell 280 branches in New England. Strong buyers lined up, including Chase and RBS Citizens. But Murray and Moynihan wanted to keep powerful rivals out of their territory. "The point was to find absolutely the worst operator possible," says an investment banker whose client wanted to buy the Fleet branches. Moynihan arranged to sell them to a weakling, Sovereign Bank. FleetBoston quickly won back old customers from Sovereign.

[onyx1]

By the way, how is Crash of the Titans?  It's been on my list, but haven't ordered it yet.  Worth reading?

 

 

I just finished reading Crash of the Titans (nothing like a power outage to catch up on reading, and tomorrow will be my 13^th day without power). It gives a good background on Moynihan. 

 

Moynihan is described as almost militaristic in his ability to take orders, and that was the reason for him being the only executive from Fleet to survive at BAC.  Lewis was merciless and punished anyone who fell even the slightest bit out of line.  At the time of the 2004 acquisition of Boston-based Fleet, Barney Frank as head of the House Banking Committee pressured Lewis to retain two board members of Fleet on the BAC board.  This would turn out to be very important for Moynihan. 

 

In early 2007, after several successful special assignments, Moynihan was made head of Global Wealth Management at BOA.  This didn’t last long.  When in mid-2007, BAC suffered a loss of $1.5bln in CDO positions in the mediocre Investment Bank, Moynihan was put in charge with a mandate to shrink it.  He cut costs, reduced staff and fired research analysts (some of which outraged important clients and Moynihan was forced to hire them back).  He determined, with Lewis’s approval of course, that they needed to sell the $400mm annual profit prime brokerage business.  Moynihan had a deal with JPM for $2bln but when Bear blew up JPM backed out.  Moynihan, having no success with other buyers, announced he was going to shut down the business.  A few days after, BNP Paribas came back to the table and bought the business for $1bln. 

 

in 2008, Moynihan was moved aside when ML’s bigger, better investment bank then run by Thains team was integrated into BAC, and there was no natural spot for him.  Lewis offered him a job in Wilmington to run the retail CC business but Moynihan said he didn’t want to move his family for a lateral career move.  What was Lewis’s response?  He fired Moynihan! 

 

Enter the Fleet directors.  They went crazy and demanded Lewis reverse his decision.  Normally it appears to me that Lewis would have ignored the demand, but because the shaky environment in 2008 Lewis relented and offered Moynihan the job as General Counsel. 

 

When Lewis announced his departure, Moynihan’s relationship with the influential Fleet directors was the reason he was given the CEO job.

 

My take on Moynihan is that he is perfect for the CEO position and the current objective of getting back to basics.  How he will run the business in a healthy economic environment is not clear from his background.  But if the Fortune reporter is correct, then I feel a lot better about the long-term prospects (and my large long position) of BAC.

 

As far as the book is concerned, I enjoyed reading it and recommend others do as well if for no other reason than a background on BAC. I knew or met a few dozen of the people mentioned in the book and the author is pretty accurate in capturing the ‘how does every decision affect my carreer’ mentality of the people at the top of the Wall Street banks in the 90's and 00's.

 

[xazp]

A few comments:

 

1)  BAC isn't likely to make another dumb acquisition for quite some time.  That's because regulators, government, and capital rules (not to mention investors) are all arrayed against big banks getting larger.  Moynihan (independent of what he may want) is just speaking the truth about the banking environment today - big banks will not get bigger via acquisition. 

 

2)  Brian Moynihan is terrible at prepared remarks.  Real snoozer.  Surprisingly, I thought portions of the Bruce Berkowitz Q&A made him really shine when he was asked about credit card defaults.  He started spouting off numbers off the cuff, current and historical, that made me realize he's got the numbers down.  I liked that answer a lot, because it encapsulated what happened, what's changed, and how things are much better now - with numbers.  In fact Jamie Dimon is really fun to listen to, but recently I've felt that Moynihan has more substance when he talks (even though he mumbles and has the worst delivery in the business). 

 

3)  I think he's doing a decent job.  He's making a lot of hard decisions, he's cutting expenses sharply.  He's voluntarily losing the crown of America's largest bank.  He's made some big settlements, he seems to be doing a good job on operations (like fixing the huge foreclosure mess).  He does have two big mistakes IMO.  The Buffett deal was very expensive and unnecessary; and, he promised a capital return and did not deliver on it (this was last year).  Those two are pretty big mistakes and so I'm neutral on him, I like his operations work but think his capital planning has been a lot of unforced errors.